The 6th China FMCG Channel Innovation Conference, hosted by New Distribution, a professional new media platform for FMCG, was grandly held from April 1 to April 3 at the Chengdu Agile Hotel. The event attracted 3,000 industry professionals from across the country, including distributors, community e-commerce platforms, brand owners, and internet companies, with a full house and unprecedented scale.

On the morning of April 1, at the China FMCG Channel Innovation Conference, Mr. Su Ying, President of Yingxiaotong, delivered a keynote speech titled "Outlook for Channel Digitalization Innovation."

Yingxiaotong is an excellent technology company serving more than half of the top 50 global FMCG companies. Its products cover 200 leading FMCG companies in over 98 countries, connecting with more than 40,000 domestic distributors. The total business volume of these companies in China has reached nearly one trillion yuan. Mr. Su Ying himself has 27 years of experience in the FMCG industry, having served as KA Director, Regional General Manager, General Manager of Marketing and Sales Operations at Procter & Gamble, and Vice President of Sales at Mars. He has a deep understanding of channel management in both domestic and international consumer goods industries and extensive operational management experience, making him a senior industry marketing management expert. New Distribution has carefully organized and excerpted the essence of Mr. Su Ying's speech at the conference for publication to benefit our readers.

Hello everyone! I come from the client side. During my 27 years of work, I spent 22 years as a client in the FMCG industry and 5 years at Yingxiaotong. So today, I want to talk about how we do digitalization from the client's perspective and what the trends are. Among the leading companies we serve, ranging from several billion to hundreds of billions in scale, we serve 40,000 distributors. These 40,000 distributors should be considered excellent in the industry because they have ERP systems and a certain level of management capability. So today's sharing is basically based on the clients we serve, through communication with their senior management, market data research, and practical implementation, we have summarized some trends and ideas.

-01-

The "Lost" 1.5 Trillion in the FMCG Industry

Our challenges have been very obvious over the past decade:

First, consumers have changed too much, too fast, and are hard to predict. Brand owners must continuously innovate quickly to catch up with or even lead consumer trends. Second, shopper channels have become more complex, and channel management complexity and costs are very high and increasing. The data we have learned is shocking: the overall scale of the FMCG industry is about 4 trillion yuan, of which channel costs are about 1 trillion yuan. For many companies, this 1 trillion yuan is a black box. The simplest example is that part of these costs becomes cross-regional channel diversion. All the channel diversion and all the money come from brand owners because you can't get blood from a stone. Another example is sales representatives. In the industry, if you include the cost of sales promoters, the sales team's expenses account for about 10%-15% of a company's total expenses. How long do these sales reps work effectively on average per day? On average, no more than 5 hours. Most importantly, how much valuable work do they actually do?

According to our analysis, from a purely theoretical standpoint, with the support of current digital tools, less than 10% of the work currently done by sales reps is truly irreplaceable and valuable.

We have systematically surveyed nearly 30,000 sales reps and can clearly see that most of them have effective working hours from about 10 a.m. to 11:30 a.m., and from 2:30 p.m. to 5 p.m. But excellent sales reps might start at 8 a.m. and end at 7 p.m., making a huge difference.

Secondly, even excellent sales reps follow the so-called 80/20 principle in their average store visits, visiting 40-50 stores. We often talk about core stores and important stores numbering 200,000 or 300,000, but in reality, these 200,000-300,000 stores may not be the most important 300,000 stores in the industry, but rather the 300,000 stores most familiar to your sales reps. So the 80/20 principle for sales reps may not reflect the industry's 80/20 principle. Third, what do they do when they visit stores? Most of the time, sales reps are taking orders. If you are a very well-known brand, will orders come even if sales reps don't visit stores? Most likely yes, because they can source from other channels.

So, if channels are digitalized, a good sales rep should focus on customer relationship management, selling in new products, pre-sales communication, and visual merchandising—tasks that machines and systems cannot replace. So if 50% or 60% of these important tasks are considered,

You can calculate that when you combine these three factors, it comes to less than 10%. So what does it mean that 10% to 15% of the 4 trillion yuan market is labor costs? That's an investment of 400 billion to 600 billion yuan, which, under the traditional model, may only create tens of billions in value in the future.

-02-

Why Is Channel Digitalization So Difficult?

So why digitalization? Digitalization is not what the grassroots most want to do, but what management and senior executives want to do, because how to manage and empower trillions of investment is a concern for all company bosses.

Many companies have made many digitalization attempts over the past decade or even two decades, but the biggest problems are the lack of real-time accurate data, and even if there is data, there is no connection, only data silos, leading to great challenges in rapid decision-making. We have compiled some channel digitalization plans and practices that we have jointly studied with some brand owners: Step one, win at the core first - achieve basic channel digitalization.

**What is the core? Personnel management, such as sales promoters and sales reps; channel management, such as distributor inventory; and channel expense management, etc. Because in terms of channels, large companies generally have internal budgets, but when tracking externally, it is unclear how the budget is spent in the channel, whether personnel are working efficiently, and whether goals are achieved. These management tasks are fundamental and must be done. Step two, achieve marketing expansion - explore new retail innovation.

**In recent years, new retail has emerged, such as O2O, B2B, and private domains. Step three, achieve interconnection - full-chain connectivity.

**For example, F2B2B2C, global cockpit, intelligent decision-making, etc. This is what many companies hope to achieve, aiming to realize comprehensive investment business analysis in the future, and even achieve precise marketing and analysis for each store, enabling rapid full decision-making and precise marketing. The ideal is beautiful: win at the core channel, win at marketing expansion, and then interconnect. But reality is harsh. In fact, according to our statistics, even among leading companies, the differences and gaps are significant. For example, in the first step of basic channel digitalization, in terms of managing people, goods, channels, and expenses, even these large brand owners have only achieved 70% system application, but only 30% use it well.

A simple example is distributor inventory management. From distributor management to sales operations management to forecasting and decision analysis, most companies stay at a very basic level, whether in terms of collection frequency or the dimensions of analysis and application. Regarding the second step, there have been quite a few attempts in the new retail field. Currently, 30% of companies have entered this exploration, and I think this number will rise quickly, but most companies are still in the trial stage. Because over the past many years, except for a few categories, traditional and offline channels still account for 60-70% of business volume, with no fundamental change. How to play new retail and how to become the main incremental growth in the future, rather than cannibalizing, requires continuous practice. As for the third step, only very few companies have achieved partial chain connectivity.

Why is there such a big difference? First, differences in mindset.

Some management think digitalization is just a tool, not a transformation, so they think it's simple, and problems arise during implementation; or they think it's not important or urgent, because they've done well without digitalization for years, reaching billions or tens of billions in scale. Second, differences in decision-making capability.

Because they haven't quantified short-term and long-term value well, they hesitate when making decisions, or underestimate the difficulties of transformation, or lack determination to drive change. Third, solutions and implementation.

In addition, many executives have no problem with mindset and decision-making, but why haven't they done well? The problem lies in solutions and implementation. The solutions are not closely aligned with their business, and implementation is unreliable. For example, in some companies' digital transformation, during POC testing, everything works well, but once it goes live, it crashes because technology and services can't keep up, leading to poor feedback on the system, making promotion painful, or even causing the project to fail.

-03-

A Good Start Is Extremely Important

Whether it's brand owners or ourselves, I think we should look up at the sky and keep our feet on the ground. As an IT executive, director, or business decision-maker, when helping the company run digitalization projects, having a clear plan is very important, but after planning, you must also have a quick-win solution that can take effect quickly, so that the company's decision-makers can see intuitive results. For example, a client with a large business initially focused on the KA channel, extracting data from KA, converting orders, and implementing solutions. Their order processing team initially had 80 people, but after the project, only 30 were needed. Think about how much money 50 people save over several years!

More importantly, KA business personnel can free themselves from tedious order tracking and focus on business analysis and customer business development, achieving cost savings and, more importantly, team transformation into an efficient business-driving model. The investment is well worth the return, which deeply impressed the company's boss, and many other projects were quickly promoted. Digitalization is a journey, not easy, not something you can finish today and be done tomorrow; it takes time, but having a good starting point that is accepted by senior, middle, and grassroots levels is very important.

Finally, let me talk about future innovation trends. First, I think there are three major business needs that can be foreseen across the industry. First, rapid and comprehensive decision-making capability. With digitalization, it can help make quick decisions.

Second, real-time management and empowerment capability. Whether senior or grassroots, the day's work should be completed the same day. Real-time difficulties and problems are solved in real time. Real-time performance is rewarded in real time, so the team operates in an efficient atmosphere and forms stronger combat effectiveness. Third, full-chain connectivity. With distributor data, sales rep data, sales promoter data, promotion data, and possibly O2O, B2B, and online data, comprehensive data-driven decision-making can be achieved, optimizing resource selection.

So I want to give a suggestion to all brand owners' digitalization leaders: if you want to help your boss achieve these goals, choosing a strategic supplier is crucial. Requirements for suppliers will become higher and higher. First, you must have multi-system connectivity capability. Some things are not done by yourself, but you need to be able to integrate. For example, Yingxiaotong can connect with 3,000 software systems in China, and all ERP systems in China can be connected. This is the result of years of accumulation, so you can be assured of its stability. Second, customer development and service capability. Business needs change quickly. To be responsible, no boss can accurately predict what will happen a year from now, just as no one could predict the pandemic. That requires quick and accurate response. Once new opportunities or problems arise, ideas are born immediately, and the system can follow up in time, quickly test and learn, and correct mistakes immediately; if successful, promote rapidly. So the supplier's rapid response capability and implementation capability are very important. Third, system stability. In the future, digitalization will inevitably involve multiple systems connected, with real-time data transmission and interaction. The data volume is enormous and increases geometrically. So if the system architecture is not strong enough, it will be difficult to complete system interactions. It might work last month, but next month the data volume doubles and causes a crash.

-04-

What Can Yingxiaotong Do for You?

To make a brief advertisement, Yingxiaotong has always served leading clients, so we have high standards, including global security certifications. So whether in industry insights or security standards, we have sufficient capability to help you. We also have rich experience in which direction to start to gain the boss's approval faster and implement faster. Second, we have a complete product ecosystem. A client once said after seeing our product line that we are the SAP of channel management. Third, our technical capabilities. Our big data computing capability, microservices development capability, and system integration capability are the fundamental guarantees for our continuous service to clients.

Finally, after-sales service capability is also necessary, including two services:

First, operation and maintenance services, helping enterprises with rapid iteration capability and stable system operation and maintenance. Decisions change quickly. If you just buy a product without strong subsequent iteration and expansion capabilities and ultra-stable system operation and maintenance, the later work will be very hard. Second, data service capability. Some tasks that no one is willing to do or can do, such as real-time data collection and manual statistical reports, can actually be achieved through digitalization by suppliers. We can do all these for enterprises. Yingxiaotong is willing to create digital brilliance with you. Thank you!

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